The Ultimate Guide to Choosing a Term Life Insurance Policy
A lot of people are so focused on living in the moment that they completely forget to think about what will happen once they’re gone. If you have people depending on you, people you love and cherish, especially if you have the progeny, you need to figure out a way to have them financially protected even when you’re no longer around. Therefore, you need an insurance policy to help them pay final expenses, replace your spouse’s income, pay off debts, buy a business partner’s share and pay off your estate taxes.
Nonetheless, there are some life-insurances that you only need for a certain period of time (for instance, until your children finish their education, you wrap up a business project or pay off a debt). This kind of insurance provides you with much more favorable terms, as they are time-limited and situation-specific. Since this is such an interesting concept, here’s a brief guide on how to choose a term life insurance policy.
1. Term vs. whole life insurance
In the introduction, we’ve mentioned some advantages of getting a term life insurance policy. However, how does it fare when compared to whole life insurance? When you opt for whole life insurance, you get more holistic protection. Nonetheless, you need to pay premiums in order the annual cost of the insurance doesn’t start growing as you grow older (and the risks increase). With term insurance, there are really no such premiums, yet, once the term period expires the premiums that you’re required to pay will, most likely, skyrocket. Don’t lose from sight the fact that these premiums are quite substantial.
2. Do you really need a life insurance policy?
There are several ways to determine whether you really need an insurance policy or not. The most important of them is – are there people depending on your earning capacity? If the answer is – no, there’s really no need for you to get one. If the answer is yes, you need to consider the amount necessary for your dependents need for living expenses, their immediate financial needs. Of course, this is only a temporary solution, which is why you also need to consider how much time and money will your dependents will need in order to become self-sufficient.
3. The premium
The first thing you’ll, most likely, want to know about is the premium that you’re supposed to pay. Now, while it’s true that the insurance provider you opt for determines the premium, there are other factors to consider, as well. We are talking about your age (the younger you are, the better), your gender (women, on average, live five years longer than men) and your occupation (as well as hazards that come with it). In other words, it’s not just about your lifestyle but also about personal characteristics that you can really do nothing about. Needless to say, your pre-existing medical conditions and your medical history are also incredibly important.
4. Two types of term life insurance
Another thing you should know is the fact that there are two types of term life insurance: level term and decreasing term. The level term insurance means that the face amount won’t change throughout the length of the policy. Here, there are annual and 5-year renewable terms, as well as 10, 15, 20, 25 and 30-year term. The most popular term is the 20-year term. Other than this, there are also level terms to a certain age (most commonly 65 years of age). As for the decreasing term, this is a scenario in which the face amount will drop each year, over the course of the term of the policy.
5. A health re-classification
If you’ve lost a lot of weight, stopped smoking or have your Type 2 diabetes under control, you might want to get a health re-classification. You see, a lot of life insurers will allow you to reduce a premium by submitting evidence of a healthier lifestyle (one of the premium value-affecting factors, we’ve already discussed).
The very last thing you should know is the fact that this is one of the most important bills that you have to pay. Sure, getting a new insurance policy is always a possibility but A) you’ll be older (which will affect the premium in a negative way) and B) you’ll have a stain on your reputation from failing to meet your financial obligations the first time around. Therefore, honoring the agreement once made is definitely the best course of action for you to follow.